In this article, we discuss the 10 best micro-cap stocks to buy according to hedge funds.
Value stocks have been in the limelight as interest rates rise and inflation batters the growth market. However, the discussion around value equities is often hijacked by large and popular companies. Research shows that even though private equity is a solid bet for a healthy investment portfolio, the returns of micro-cap value stocks have outperformed it over the past few years. These micro-cap stocks do not command much attention on social media either as tech-based offerings reign supreme on the internet.
Boston Partners, a capital market company, outlines that in a fifteen-year period between 1995 and 2020, the US Private Equity Index soared by around 716%, compared to the 740% rise in the CRSP Equal Weighted Microcap Index over the same period. Both indexes outperformed the returns of the benchmark S&P 500 that was 255% between 1995-2020. The amount of institutional capital dedicated to around 8,700 micro-cap stocks tracked by Boston Partners has also shrunk since 2008 even as private equity assets witness a surge in inflows.
Institutional investors like hedge funds have a bias towards large cap stocks like Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), and Meta Platforms, Inc. (NASDAQ:FB), but usually do not pay much attention to micro-cap entities. The report by Boston Partners reveals that mutual funds and institutional investors, from both active and passive domains, hold roughly 78% of the total holdings in the Russell 2000 but only 40% of the non-Russell 2000 microcap universe.
Even though there are many reasons to invest in micro-cap stocks, the price volatility often associated with smaller companies puts off many investors. Many micro-cap stocks in high-growth domains like artificial intelligence, space, and biotech trade on over-the-counter (OTC) markets as well, which limits their access to a broader marketplace in the United States. However, the returns of these firms, evidenced by the 51% returns of the Dow Jones Select Micro-Cap Index as of September 2021, is further evidence that these concerns seem out of place given the performance of micro-caps.
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Our Methodology
These were picked using market capitalizations and growth catalysts. Stocks that have a market capitalization between $50 million and $300 million were preferred for the list. The business fundamentals and analyst ratings of each company are also discussed to provide some additional context.
Data from around 900 elite hedge funds tracked by Insider Monkey was used to identify the number of hedge funds that hold stakes in each company.
Best Micro-Cap Stocks to Buy According to Hedge Funds
10. IBEX Limited (NASDAQ:IBEX)
Number of Hedge Fund Holders: 3
IBEX Limited (NASDAQ:IBEX) provides tech-enabled lifecycle experience solutions. Some of these include IBEX Connect, IBEX Digital, and IBEX CX. The three are customer service, customer acquisition, and customer experience solutions respectively. On February 16, the company posted earnings for the second fiscal quarter of 2022, reporting earnings per share of $0.27 and a revenue of around $132 million, up 12% year-on-year. The board of directors of the firm also recently approved a $20 million share repurchase program.
IBEX Limited (NASDAQ:IBEX) also raised guidance numbers for the rest of the fiscal year in the earnings report. The firm now expects organic revenue growth of 10% to 12% against consensus estimates of 7.3%. Capex guidance was around $35 million.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Schonfeld Strategic Advisors is a leading shareholder in IBEX Limited (NASDAQ:IBEX) with 400,000 shares worth more than $5 million.
At the end of the fourth quarter of 2021, 3 hedge funds in the database of Insider Monkey held stakes worth $4 million in IBEX Limited (NASDAQ:IBEX), compared to 4 in the preceding quarter worth $13 million.
Just like Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), and Meta Platforms, Inc. (NASDAQ:FB), IBEX Limited (NASDAQ:IBEX) is one of the stocks that elite investors have on their radar.
9. Huttig Building Products, Inc. (NASDAQ:HBP)
Number of Hedge Fund Holders: 7
Huttig Building Products, Inc. (NASDAQ:HBP) makes and sells building materials and wood products. These include door units, windows, stair parts, roofing, siding, insulation, and other products and services. On March 2, the firm posted earnings for the fourth quarter of 2021, reporting a revenue of more than $230 million, up close to 25% compared to the revenue over the same period last year. The company is presently in the process of reviewing strategic alternatives to boost shareholder value.
Jon Vrabely, the CEO of Huttig Building Products, Inc. (NASDAQ:HBP), noted in the earnings call that “continued growth in demand for residential building products, an elevated pricing environment, and a focus on growing strategic product categories” were some of the factors that led to sales growth for the firm during the fourth quarter and the year overall.
At the end of the fourth quarter of 2021, 7 hedge funds in the database of Insider Monkey held stakes worth $40 million in Huttig Building Products, Inc. (NASDAQ:HBP), up from 3 in the preceding quarter worth $15 million.
Among the hedge funds being tracked by Insider Monkey, Connecticut-based investment firm Mill Road Capital Management is a leading shareholder in Huttig Building Products, Inc. (NASDAQ:HBP) with 1.7 million shares worth more than $19 million.
8. First Western Financial, Inc. (NASDAQ:MYFW)
Number of Hedge Fund Holders: 8
First Western Financial, Inc. (NASDAQ:MYFW) is a Colorado-based financial holding company. Some of the services it provides include wealth management, private banking, personal trust, investment management, mortgage lending, and institutional asset management. The firm operates a total 18 profit centers, mostly spread across Colorado and Arizona. Last year, the company had merged with Teton Financial Services, the parent company of Rocky Mountain Bank. The combined firm had over $7 billion in assets under management at the time.
Scott Wylie, the CEO of First Western Financial, Inc. (NASDAQ:MYFW), noted during the fourth quarter earnings call that the company had increased book value per share by 116% since the initial offering in 2018, with around 20% of that increase coming in 2021 alone.
Among the hedge funds being tracked by Insider Monkey, New York-based firm Basswood Capital is a leading shareholder in First Western Financial, Inc. (NASDAQ:MYFW) with 498,053 shares worth more than $15 million.
At the end of the fourth quarter of 2021, 8 hedge funds in the database of Insider Monkey held stakes worth $28 million in First Western Financial, Inc. (NASDAQ:MYFW), up from 5 in the preceding quarter worth $20 million.
7. Drive Shack Inc. (NYSE:DS)
Number of Hedge Fund Holders: 8
Drive Shack Inc. (NYSE:DS) operates as a leisure and entertainment firm. It owns and runs golf resorts that comprise around 55 properties spread across nine states in the country. The stock stands to benefit as virus restrictions are lifted across the globe and people return to entertainment centers. The Puttery segment of the firm is expected to lead this boom as Drive Shack plans to have around 15 of these venues running in 2022. The company is also working to expand through borrowed capital not due till 2035.
On March 11, Drive Shack Inc. (NYSE:DS) posted earnings for the fourth quarter of 2021, beating analyst expectations on earnings per share and revenue by $0.01 and $1 million respectively. At the end of the 2021 fiscal year, the firm had almost $60 million cash in hand.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Lansing Management is a leading shareholder in Drive Shack Inc. (NYSE:DS) with 3.2 million shares worth more than $4.6 million.
At the end of the fourth quarter of 2021, 8 hedge funds in the database of Insider Monkey held stakes worth $6 million in Drive Shack Inc. (NYSE:DS), up from 7 in the preceding quarter worth $11 million.
6. Ikena Oncology, Inc. (NASDAQ:IKNA)
Number of Hedge Fund Holders: 8
Ikena Oncology, Inc. (NASDAQ:IKNA) operates as a targeted oncology firm. The company focuses on the development of medicines for unmet medical needs. It is presently working on many such projects, including IK-930, an oral small molecule inhibitor of the transcriptional enhanced associate domain, and IK-175, an oral inhibitor of aryl hydrocarbon receptor. On March 17, the firm posted earnings for the fourth quarter of 2021, beating analyst estimates on earnings per share and revenue by $0.59 and $15 million respectively.
On March 17, Credit Suisse analyst Judah Frommer maintained an Outperform rating on Ikena Oncology, Inc. (NASDAQ:IKNA) stock with a price target of $24, highlighting the pipeline progress updates and fourth quarter results in a bullish analysis.
At the end of the fourth quarter of 2021, 8 hedge funds in the database of Insider Monkey held stakes worth $153 million in Ikena Oncology, Inc. (NASDAQ:IKNA), the same as in the preceding quarter worth $208 million.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm OrbiMed Advisors is a leading shareholder in Ikena Oncology, Inc. (NASDAQ:IKNA) with 2.9 million shares worth more than $36 million.
In addition to Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), and Meta Platforms, Inc. (NASDAQ:FB), Ikena Oncology, Inc. (NASDAQ:IKNA) is one of the stocks that institutional investors are monitoring.
5. Kimball International, Inc. (NASDAQ:KBAL)
Number of Hedge Fund Holders: 12
Kimball International, Inc. (NASDAQ:KBAL) makes and sells furniture products. The firm has an impressive dividend history stretching back 32 years. On February 7, the company declared a quarterly dividend of $0.09 per share, in line with previous. The forward yield was 3.81%. Despite rising raw material and labor costs, as well as logistical challenges due to supply chain disruptions, the firm has entered 2022 with record backlog and the management has also affirmed previous guidance for the present fiscal year.
Some of the products that Kimball International, Inc. (NASDAQ:KBAL) markets include height desks, office chairs and stools, file cabinets, tables, lounge seating, as well as furniture solutions for the healthcare industry.
At the end of the fourth quarter of 2021, 12 hedge funds in the database of Insider Monkey held stakes worth $25 million in Kimball International, Inc. (NASDAQ:KBAL), compared to 14 in the previous quarter worth $30 million.
4. Standard BioTools Inc. (NASDAQ:LAB)
Number of Hedge Fund Holders: 17
Standard BioTools Inc. (NASDAQ:LAB) markets instruments and software for clinical laboratories. In late March, the stock climbed nearly 10% after the company announced that Caligan Partners, the largest shareholder of Standard BioTools, had agreed to a strategic capital infusion from Casdin Capital and Viking Global Investors. In return for the agreement, Caligan has recommended that a life sciences expert join the board of directors of the company upon the completion of the deal.
On April 11, Standard BioTools Inc. (NASDAQ:LAB) announced that it would be launching the Hyperion+ Imaging System, a new system that provides high-plex spatial imaging with lower limits of detection and improved sample capacity and time to results.
At the end of the fourth quarter of 2021, 17 hedge funds in the database of Insider Monkey held stakes worth $62 million in Standard BioTools Inc. (NASDAQ:LAB), up from 16 in the preceding quarter worth $118 million.
3. CyberOptics Corporation (NASDAQ:CYBE)
Number of Hedge Fund Holders: 17
CyberOptics Corporation (NASDAQ:CYBE) markets high precision sensing technology solutions and system products. Some of these include memory module inspection systems, sensors and systems for semiconductor wafer and advanced packaging inspection and metrology, as well as high precision 3D and 2D sensors. The stock has climbed more than 52% in the past twelve months. The shares stand to benefit from the chip shortage around the world that have led to an increase in chip prices amid high demand.
On March 28, CyberOptics Corporation (NASDAQ:CYBE) announced that it had received an order worth nearly $2 million for 3D MX3000 memory module inspection systems that are powered by Multi-Reflection sensors.
Among the hedge funds being tracked by Insider Monkey, Maryland-based investment firm AIGH Investment Partners is a leading shareholder in CyberOptics Corporation (NASDAQ:CYBE) with 499,017 shares worth more than $23 million.
2. Hovnanian Enterprises, Inc. (NYSE:HOV)
Number of Hedge Fund Holders: 18
Hovnanian Enterprises, Inc. (NYSE:HOV) is a New Jersey-based homebuilding firm. On March 1, the company posted earnings for the first fiscal quarter of 2022, reporting earnings per share of $3.07 and a revenue of more than $565 million, down 1.6% year-on-year. The firm guided revenue of $700 million to $750 million for the second fiscal quarter and a gross margin of 23% to 25%. For the full fiscal year, the guidance for the revenue was $2.8 billion to $3 billion and gross margin was expected to be between 23.5% to 25.5%.
Hovnanian Enterprises, Inc. (NYSE:HOV) stands to benefit from the increase in home prices as inflation and interest rates also rise. However, the Dallas Fed has warned that US home prices risk going out of step with market fundamentals if this increase is not checked.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Renaissance Technologies is a leading shareholder in Hovnanian Enterprises, Inc. (NYSE:HOV) with 214,415 shares worth more than $27 million.
1. Accuray Incorporated (NASDAQ:ARAY)
Number of Hedge Fund Holders: 20
Accuray Incorporated (NASDAQ:ARAY) makes and sells radiotherapy systems for alternative cancer treatments. In addition to North America, the firm serves regions such as Europe, the Middle East, India, Africa, Japan, and China, among others. On February 10, the stock rose nearly 10% after the company announced that data from a phase 3 trial of the TomoTherapy System, a new system developed by the firm for breast cancer patients, suggested that the system was superior to radiotherapy in preserving long-term heart and lung functioning.
In late January, Accuray Incorporated (NASDAQ:ARAY) had posted earnings for the second fiscal quarter, reporting a revenue of $116 million, up over 19% compared to the revenue over the same period last year and beating estimates by $13.3 million.
At the end of the fourth quarter of 2021, 20 hedge funds in the database of Insider Monkey held stakes worth $98 million in Accuray Incorporated (NASDAQ:ARAY), up from 18 in the previous quarter worth $81 million.
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Disclosure. None. 10 Best Micro-Cap Stocks to Buy According to Hedge Funds is originally published on Insider Monkey.
